A few weeks ago I wrote a post about the $285m “settlement” agreed to by CitiGroup in a judgement brought against it by the SEC for misleading clients in a $1Billion collateralised debt obligation (CDO) linked to sub-prime residential mortgages. Basically the bank packaged up crappy mortgages, sold it to their customers as an investment, and then bet against the fund, knowing it would turn worthless. Sounds more like a casino and a rigged roulette wheel than your trusted bank!
Anyway, the clients who bought the CDOs lost $700m while Citi make $160m in fees and trading profits. Do you smell a rat yet? It gets better. The “settlement” to which Citi and the SEC mutually agreed was a $285m fine (taxpayers bailout money?) along with the understanding, as is custom in such settlements, that Citi is neither admitting or denying any wrongdoing.
I went slightly nuts when I read this, and now it looks like a New York judge, Jed Rakoff is finally taking a stand against the big banks and their cozy relationship with the SEC. Judge Rakoff struck down the $285m settlement, arguing that “the deal touches on the transparency of financial markets, whose gyrations have so depressed our economy and debilitated our lives, that there is an overriding public interest in knowing the truth.” Citi now has to go to trial in New York instead of getting away with its previous fine and a quick cover up.
To me, this incident of someone in authority finally standing up against the big banks and their insider relationship with the Fed and the SEC might just represent the tip of the iceberg. As more and more is revealed about the role of the banks, the Fed and the SEC in the recent global financial crisis, the ugly truth seems to be hard to keep in the closet. And with the global Occupy Wall Street protests forcing all citizens to take an honest look at how their governments and financial institutions are behaving, the pressure for real reform is mounting.
I recently read a very thorough article in Bloomberg News on the past behaviour of the big banks and governmental financial institutions exposing much of this mutual back scratching relationship. Secret Fed Loans to Struggling Banks. It makes the Citi OCD deal look like penny poker. And it looks like Congress is getting in on the investing game as well with the recent investigations of Congressional “insider knowledge” trading.
Time for real reform? One thing I am certain of, if there is another financial meltdown, there will be no government bailouts of the banks, not in the current climate of voter mistrust.
Tight Lines . . .
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